Thomas Datwyler has owned and driven operations at 9Seven Consulting in Hudson, Wisconsin, since 2013. Throughout his career as an accounting leader, compliance officer, and treasurer for nonprofit organizations, Thomas Datwyler has managed a diversity of basic and complex bookkeeping responsibilities. He is particularly adept at performing account reconciliations.
Account reconciliation is the process of collating multiple financial records and ensuring that all organizational data aligns with external financial statements, such as invoices, credit card bills, and bank statements. Businesses, charities, and other organizations often perform independent account reconciliations with a goal of ensuring financial accuracy, though they may also occur as part of internal or third-party auditing processes.
In addition to validating internal financial data, account reconciliations can prevent repeated occurrences of costly inaccuracies and reduce instances of fraud. More broadly, the process contributes to both organizational and individual financial stability.
Account reconciliations look similar for individual consumers and large corporations, though organizations have many more financial statements to review. At the base level, the process begins with an accounting professional collecting all the necessary external documentation, including any relevant receipts. While professional accountants have access to advanced, and in some cases, proprietary software, individuals may need to perform a line-by-line comparison of expenditures, making note of any discrepancies.
Minor inaccuracies may have little consequence for business operations or a person’s financial stability, but others, especially those that arise from a recurring error, can have severe ramifications and must be rectified immediately. Similarly, discrepancies may require little investigation or might represent instances of a much larger financial-reporting issue resulting either from a faulty reporting mechanism or willful malfeasance by an employee.
For individuals, accounting errors and mismanagement can lead to overdraft fees and missed payments, which can have a snowball effect and become very costly. Businesses, on the other hand, can use account reconciliations to uncover fraud. Furthermore, organizations that lack accurate financial records leave themselves vulnerable to compliance issues, which can carry harsh penalties.
With compliance, one of the most important aspects of account reconciliations involves documenting the full reconciliation process. If accountants do not fully detail the process, businesses may encounter similar issues in the future and fail to understand how financial professionals remedied a situation. Poorly recorded reconciliation processes can also lead to trouble during external audits.
Professional accountants must familiarize themselves with a wide range of reconciliation processes. Vendor reconciliations, for example, involve checking accounts payable against vendor and supplier invoices, while customer reconciliations measure accounts receivable records with customer payment data. Intercompany reconciliations, meanwhile, review financial reporting and recording between divisions within the same organization. Similar processes include bank reconciliations and credit reconciliations.
Industry experts highly value effective account reconciliation processes. Without these safety measures, companies can suffer from cash-flow problems, inaccurate tax reporting, and various legal issues. Financial leaders can optimize reconciliation results by transitioning from manual reports to automated processes. Studies show that automated account reconciliations can reduce manual data-entry and related errors by between 60 and 80 percent. Without intervention, these errors can cost companies up to 2 percent of their annual revenue. Automated account reconciliations also save companies money on time and labor costs, allowing employees to focus on more complex tasks.
